black people and money

Why Are So Many Black-Owned Businesses Failing?

Why Are So Many Black-Owned Businesses Failing?

By Andre Jones

According to Bloomberg, 80 percent of businesses fold in the first 18 months, and when it’s a Black owned business, those numbers rise dramatically. Here are some of the more common reasons that Black businesses fail, and how you can avoid falling into these traps.

  1. Not considering strategic partnerships – while a lot of us are enamored of the fancy “CEO” title, according to Black Enterprise CEO Earl “Butch” Graves Jr., what a lot of Black owned businesses should be doing is seeking out other Black owned businesses to merge with. This will enable a business to scale up strategically, position their company for growth, and strengthen the company’s operational base.

  2. No market research/Not really in touch with customers – According to Forbes’ contributor Eric T. Wagner, many entrepreneurs hit on a potential opportunity or idea, then fail to engage potential customers to see if the idea actually will actually work. Nathan Furr and Paul Ahlstrom, co-authors of the book ‘Nail It, Then Scale It’ wrote, “Which would you rather do — talk to customers now and find out you were wrong or talk to customers a year and thousands of dollars down the road and still find out you were wrong?”

  3. Capital Shortfall – According to Black Entrepreneur, underestimating start-up capital needed and overestimating revenue in the beginning is a common mistake. Black businesses often don’t take the time to think about things such as inventory, marketing, payroll, and office space. The 2015/2016 Global Entrepreneurship Report, reports over 50 percent of now defunct businesses had to halt operations due to lack of profits or financial funding, with the US Census Bureau highlighting the racial disparity, “white-owned firms have average annual sales of $439,579, compared with only $74,018 for Black owned firms,” the bureau reports.

  4. Failure to market online – In today’s market, if customers log on and don’t see you – you don’t exist. According to Forbes, one in four Americans make at least one online purchase per week. Failing to have at least one informational website and a professional presence on social media platforms such as Twitter, Facebook, and Instagram will kill your business in today’s market.

  5. Failing to establish a profitable business model with proven revenue streams – At the end of the day, this is what really matters. Failing to accurately achieve product/market fit where the actual money gets made means you have a dream – not a business. While creating a full business plan is daunting to many, it is crucial to have at least a sound, working business model that can clearly define your revenue stream.

While this list is not exhaustive by any means, these are just some of the more glaring practices preceding Black business failure. If you’re looking to start your own business two amazing resources for learning would be The Black Business School and The Black Wealth Bootcamp.

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